Guidant’s (NYSE: GDT) acquisition of X-Technologies, reported exclusively in “Globes” yesterday, all of a sudden gave people in the medical equipment market a wonderful feeling that their labors were not in vain. It seemed like another Israeli Cinderella story, this time in the medical field. Yes, those compulsive entrepreneurs, Shlomo Ben-Haim and Lewis Pell, have done it again. Given their involvement in companies like InStent, Influence, and BioSense, their place in the Israel high tech hall of fame is hguaranteed.
Guaranteed, but not absolutely. A few skeptical souls wondered yesterday just what in X-Technologies’ technology justifies an acquisition price of $200 million. Yes, the technology works, and those who have seen the results have called them “impressive”. Yes, the company has had sales for a year already, in both Europe and Israel. On the other hand, X-Technology, which isn’t an Israeli company at all, wouldn’t have survived, had it not quickly grabbed the technology from an acquired US company.
The technology isn’t unique, either. Boston Scientific (NYSE: BSX), Guidant’s bitter rival, has a similar, though not identical, technology, also acquired from an external source. It’s easy to see that Guidant wished to maintain its leadership in the market. The surprising element in the acquisition is the company being acquired, not the company doing the acquiring. Boston Scientific itself probably didn’t bat an eyelash yesterday. As painful as the admission may be, the $200 million price at which Guidant acquired X-Technologies may better reflect the buyer's need than the seller's talent.
A leading entrepreneur in the field agrees: “The cardiology market is booming, and the major companies have to buy a lot of technology to maintain their positions. There’s going to be a real war here. The acquisition of X-Technologies for $200 million means that in another two years, they’ll spend much more money to buy my company and others.”
The latest estimates are that the angioplasty market will soon exceed even the current estimate of $5 billion. US cardiologists are faced with a 30-40% rise the number of patients referrals this year. The market is not a new one; balloons have been inserted in patients’ arteries for 25 years already. The technological developments in the field, however, together with the competition to become the leader and the growing demand, are recruiting ever-increasing quantities of personnel and money. In an environment like this, every development obtained by your competitors becomes a “must have”.
Keep in mind the case of X-Technologies’ big sister, BioSense, sold to Johnson and Johnson (NYSE: JNJ) for its technology, which appeared brilliant at the time a system for assisting cardiology patients, which involved punching a hole in the cardiac muscle. The technology was dropped soon after the acquisition (BioSense still exists, but now deals in other developments). Uncomplimentary figures on the effectiveness of the technology were published at a medical conference at the time. One fine day, the penny dropped for all the doctors, and BioSense’s technology faded away.
Partners500 strategic partnerships manager and analyst Revital Ben-Ami says this acquisition “is further evidence of the huge investment potential in the medical equipment market.” She adds that a product in this field must not only work, but also demonstrate a synergy with the strategic investors’ products. That’s a careful way of explaining the price.
”From our experience with Guidant,” Ben-Ami explains, “once they identify a need for a product or technology on the part of the business division in question, the business terms of the agreement are no obstacle. The major medical equipment companies face continuous intense competition. They’re inclined to close deals quickly, when they find a product or technology that is likely to contribute to their competitive advantage.” That is one of the reasons that Ben-Ami recommends that Israeli companies ask for technological feedback from the global giants as early as the preliminary development phase, regardless of their business plans.
Why was X-Technologies chosen over other companies? The matter was put in a nutshell by another entrepreneur, who said that a company needs only three things, assuming its technology works right: good connections, good management, and topnotch public relations. The X-Technologies founders didn’t have outstanding public relations, but they clicked on the other two requirements.
Finally, don’t be tempted to make wild predictions, such as that the next exit will be Disc-O-Tech (in which Lewis Pell is also involved). Saying that Disc-O-Tech, which operates in the orthopedic accessories market, will have the same success as X-Technologies is like saying that olives and peaches are the same, because they both have pits. The existence of a good technology doesn’t mean it exactly suits the needs of a major international company.
Published by Globes [online] - www.globes.co.il - on March 12, 2003